The financial landscape is changing right before our very eyes. Higher upcoming interest rates in the U.S., a possible Greek exit from the European Union and changes in energy policy are just a few of the many issues global markets are currently facing.
Any talk, however, of changes in the global economy could not take place without throwing China into the discussion.
As the world’s #2 economy, China has asserted itself as an economic powerhouse. The country is continuing to build upon this growth, and is now seeking out ways to further cement itself and its interests at the center of global monetary policy and trade.
Of particular interest is the country’s hunger for gold…
Now, it should be noted that the People’s Republic of China has not publicly disclosed its gold holdings since 2009. At that time, the country stated it held 1,054 tons, a number that it maintains to this day. The Chinese Government increased its holdings to that figure from 600 tons, an amount it held since the early 2000s.
China may just be getting ready to announce to the world what it does have-and that could be quite a bit. Some analyst estimates put Chinese gold reserves at about double their stated 1,054 tons, while other estimates claim the Chinese may have amassed as much as 30,000 tons of gold.
It would not be too difficult for China to have significantly bolstered its reserves in recent years…
The country has been both, the leading buyer AND producer of bullion for some time now, with its gold mines producing several hundred tons of gold annually.
Why tell the world now?
To understand why China could elect to disclose its gold reserves, and why the nation has likely been buying and hoarding the yellow metal for some time, one must see the big picture.
The big picture is change…
China is looking to gain further influence in global monetary affairs. One way for the country to continue to increase its influence is by having its currency become part of the International Monetary Fund’s monetary reserve denominator. This Special Drawing Right, or SDR, was created by the IMF in 1969 in order to support the Bretton Woods exchange system.
Currently, the SDR is comprised of the dollar, euro, yen and sterling. The addition of China’s currency as an emerging market currency would be very symbolic and could help solidify the renminbi’s place among the elite currencies of the world.
Obviously, having more gold in its reserves could bolster China’s position.
Another way to look at this, however, is that China recognizes that significant changes could be underway in global trade.
A push for a move away from the dollar is already taking place, and China will likely want to do all it can to position its currency to become the reserve currency of the globe.
Amassing sizable gold reserves and having its currency become part of the SDR are both big steps in that direction…
China’s lack of transparency regarding its gold holdings is especially interesting given the fact that many other emerging market central banks have also been adding to their gold reserves. Countries like Russia, Turkey and Iraq have all been buying gold in recent years, and that trend appears to be ongoing.
While estimates of China’s reserves vary by a large degree, it appears without question that the country is actively adding gold to its reserves and doing so for good reason. If the country has put together anywhere near higher estimates of 30,000 tons of gold, it could put their currency in a very strong position.
Whether they have doubled their reserves from 2009 levels or added significantly more since that time, China knows what is at stake. The Yuan will likely continue to gain further acceptance from the global financial community. Having more of its reserves in gold will only add to the Yuan’s appeal.
China sees it. Change is on the horizon and the global financial marketplace may soon operate under a different set of rules. China is preparing. Shouldn’t you?
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